British American Tobacco has admitted bankrolling an organisation of small shopkeepers that led the fight against the coalition government's plans to force cigarettes to be sold only from under shop counters. Speaking at BAT's annual meeting in London on Thursday, company chairman Richard Burrows confirmed that the tobacco group had funded the National Federation of Retail Newsagents (NFRN) and attended meetings with the group and its lobbyists Hume Brophy to discuss the campaign against the point-of-sale move.

Their relationship raises questions about Hume Brophy's tactics when it was lobbying MPs against the plan, as it said it was representing the NFRN and did not disclose BAT's role.

Activists, among them the Labour MP Kevin Barron and Action on Smoking and Health, have voiced fears over "covert lobbying" of MPs by big tobacco companies. The day before BAT told the Guardian that claims that it was involved in "underhand tactics and the funding of an independent retailer organisation, via a PR agency" were "untrue".

Andrew Lansley, the health secretary, had refused to deal with cigarette manufacturers over the issue as a World Health Organisation treaty forbids it. He will now be asked whether he was aware of BAT's role in making representations to MPs.